It paid to be small

Date posted: September 14, 2012

It’s commonly thought that big companies can survive adversity better than small firms. Big companies have more resources and perhaps better access to credit for loans in tough times. N.C. State University economist Mike Walden considers whether this conventional wisdom was true in the past recession.

“Well …, the conventional wisdom had been supported by studies in previous recessions, but of course this recession has been so different than previous recessions that it’s probably not surprising to our listeners that the answer is no.

“That conventional wisdom was not borne out during this recession. In fact a recent study looked at job losses in companies of different sizes, and they found — that study found — that on a percentage basis the biggest companies in the country lost five times more employees relatively than the smallest companies. And that totally turned around what had happened in the previous recessions.

“The reasons for this are unclear. Some possible reasons are the credit crunch that we saw during the recession was really unsurpassed. It was never this crunchy, if you will. As in previous recessions, (this) may have hurt big companies more.

“Another potential reason is smaller companies are more flexible. They can perhaps move faster to reduce costs. And they were able to do that and perhaps survive better than those large companies.

“But again this is another example … of how this recession has been one for the books.”

About Economic Perspective:

Economic Perspective, featuring N.C. State University economist Mike Walden and host Mary Walden, focuses on economic issues facing North Carolina and the nation. The 1- to 2-minute segments are issued each week day.

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